The Law-Growth Nexus

The Rule of Law and Economic Development

Much of what we call the developing world has stopped developing, while growth in other regions has slowed. In the past, economists prescribed liberalization and privatization to governments seeking to improve their economic performance. But dissatisfaction with these remedies in many countries has left policymakers searching for new methods to jumpstart growth.

In The Law-Growth Nexus, Kenneth Dam explores the newly ascendant view that institutions—in particular, the rule of law—play a critical role in determining which economies thrive and which lag behind. Drawing on five decades as a legal scholar and policymaker, the author explains what policymakers need to know about the relationship between legal institutions and economic growth. He defines the essential concepts that make up the rule of law-property rights, contracts, and enforcement—and analyzes the roles they play in the markets for land, equity, and debt.

Dam uses an extended analysis of China to assess the importance of the rule of law. This case study illustrates several of the book's central themes, including the difficulty of building a strong, independent judiciary and a first-class financial sector.

Could new or better legal institutions help unlock the growth potential of the developing world? In exploring this question, The Law-Growth Nexus goes beyond regression results to examine the underlying mechanisms through which the law, the judiciary, and the legal profession influence the economy. The result is essential reading for analysts and policymakers facing the challenges of legal and economic reform.

Book Award: The Law-Growth Nexus was named a Choice Magazine Outstanding Academic Title for 2007.